China’s shipping giants face oversupply and weak demand



China’s shipping giants face strong headwinds from fleet oversupply and sluggish global demand, after reporting a weak performance for the first half.

China Cosco Holdings, the country’s biggest shipping company, reported a 7.9 per cent year-on-year decline in revenue to 29.93 billion yuan.

Helped by 4 billion yuan in government subsidies on scrapping old vessels, the company made a net profit of 1.9 billion yuan, swinging from a loss of 2.28 billion yuan a year ago.

China Shipping Container Lines, the second-largest shipping firm, posted a 97.5 per cent plunge in net profit to 10.64 million yuan.

Container and dry bulk freight rates dropped sharply in the first six months, with the Baltic Dry Index down 47 per cent year on year at an average 623 points, the lowest level since the global financial crisis.

“We expect the price to stay low as global overcapacity will persist due to weakness in the euro zone and emerging economies,” said Ma Zehua, China Cosco’s chairman.

“The slowdown in China plus the fact that we will not receive any government subsidies in the second half means we will face a lot of pressure,” chief financial officer Tang Runjiang added.

To support the industry, Beijing has been granting 1,500 yuan per gross tonne to shipping companies to replace obsolete ships. The award is settled in the first half of every year.

“With the massive influx of new shipping capacity, the shipping market will face even more uncertainties,” CSCL said.

China Cosco projects the Baltic index to rebound to 1,100 points, but analysts think it is “too positive”.

“The index will be below 1,000 points,” said Daniel Meng, an investment analyst at CLSA. “The dry bulk sector needs two years to pick up while the containers sector may recover a bit next year. The shipping market as a whole will still have a tough time in the short term.”

According to Clarkson, global container and dry bulk shipping this year will see capacity growth of 6.5 and 2 per cent, respectively, exceeding demand growth.

To cope with the headwinds, China’s shipping leaders are making efforts to cut costs and optimise fleets.

China Cosco’s director Jiang Lijun said the company would focus on integration strategies for the container and dry bulk sectors to improve efficiency.

The market expects a possible merger between the mainland’s two largest shipping and logistics conglomerates, China Ocean Shipping Group (Cosco) and China Shipping Group.

China Cosco, the flagship of state-owned Cosco, on Friday declined to comment on the merger plan.

Source from : South China Morning Post